From The Psychology of Speculation: The Human Element in Stock Market Transactions by Henry Howard Harper.
Since trading in stocks has the appearance of being an easy way of making money, it is one of the most alluring pursuits of modern times; and from this very fact, although legalized for all, it is susceptible of becoming one of the most dangerous habits known.
In a bear market a discouraged bull is at least not despised ; he may find a sympathetic sufferer; but in a bull market no one ever wastes any compassion on a bear, or admits sympathetic kinship with him.
But the more he reasoned and studied the charts, the more unprecedented and obstinate the market became. One thing he failed to consider was, that the favorite caprice of the stock market is to violate precedent, and to do the thing least to be expected of it.
But there is far greater danger in excessive optimism than in excessive pessimism, for the reason that optimists are inclined to back their hopeful views by indiscriminate purchases of stocks at high prices, while pessimists are seldom disposed to back their views at all.
It was a wise custom of the ancients to build their pyramids with the big end on the ground; but modern builders of pyramids in the stock market have reversed this time-honored practice, and most of them build their stock pyramids with the heavy end up; therefore they invariably topple over after reaching a certain height.
On the losing side there are at least three distinct classes to be found at all times in stock market circles: one class who know nothing about the market, except what they read or hear; they are guided by floating rumors, the advice of well-meaning friends, and the spumous counsel of market tipsters. There is another class who arbitrarily suppose they have learned everything there is to know about the market; they possess a large store of cynicism and skepticism, and their market maneuvers are guided by a monumental self-sufficiency that would be a valuable asset in trading but for the fact that it is worthless. There is a third class who, although they really know the practices, theories, precedents and possibilities of the game, are not temperamentally qualified to utilize this knowledge in their transactions.
He therefore enters "the game," as the stock market is oftentimes called, with his eyes open, and the cards all faced up on the table. But if he deviates from sound principles and resorts to dabbling in stocks that he knows nothing about, except from hearsay among traders and market tipsters, and undertakes to guess the maneuvers of cliques who are manipulating them, he has no one to blame but himself for indulging in such an expensive folly.
The most important thing in golf, and the hardest thing to learn, is to keep the eye on the ball while in the act of hitting it; and the hardest thing to learn instock trading is to keep the eye off the market, hold firmly and patiently to good resolutions, and not try to get rich too quickly.
Every stock market cycle shatters some precedent ; every era produces new phenomena.
To sum up the whole situation in a word, those who would make money speculating in the stock market should first understand that it requires as much caution and business acumen as any other money-making enterprise, plus some knowledge of the psychological handicaps; also plus the rare faculty of maintaining a complete mastery over one's impulses, emotions and ambitions under the most heroic tests of human endurance. All speculations, and even the most conservative investments, have some slight element of risk; all lines of business are more or less a gamble; marriage is a gamble; political preferment is a gamble; in fact nearly everything in life, including our very existence, is an uncertainty; yet people are not thereby discouraged from entering into any and all of these ventures. Those who look only for certainties have far to search and little to find in this world.